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TMI Blog2024 (4) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... d over long decades. In S Ganga Saran and Sons (P) Ltd. [ 1981 (4) TMI 5 - SUPREME COURT ] in the context of the then existing Section 147(a) of the Act, yet, in the context of initiation of reassessment proceedings upon recording of reasons to believe , it was established in law that those words were stronger than is satisfied ; the belief must be based on reasons that are relevant and material . For initiation of reassessment proceedings, there must exist tangible material indicating some income had arisen either on accrual or actual/ cash basis and that it has escaped assessment. Merely because the invoices issued by the petitioner were below the international price, it could never be alleged that there was any income on accrual basis as the petitioner earned no legal right to receive any higher amount. Therefore, we have to examine if there exists any material indicating receipt of any income on actual/ cash basis, over and above the invoice price. The entire opinion of the Commission and the recital made in the reasons to believe recorded by the petitioner as also reasons recorded by that authority while rejecting the objections raised by the petitioner are directed and confin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10.2014. In response thereto the petitioner filed its reply on 31.10.2014 and prayed to be supplied reasons to believe to initiate the re-assessment proceedings. Those were supplied vide letter dated 26.11.2014. They read as below:- The third report on illegal mining of Iron and manganese ores in the State of Goa by the honourable Justice M.B. Shah commission of enquiry was submitted in October, 2013. Justice Shah commission conducted thorough factual enquiry as per the given mandate and among other findings has also found out that there has been large-scale under invoicing of the export price in the State of Goa. The findings of the commission is mentioned on page 52 of the above-mentioned report are quoted below- it appears that under invoicing of the export price in the State of Goa is apparent. The export price fixed by some companies are beyond imagination, when compared with the cost of production (rupees 250/- per metric ton) royalty, cost of transportation, loading and unloading charges, Port handling charges, export duty, charges of sampling and analyses, rents of the plots at Stocking yards (various stages), etc, the prudent exporter can't afford such low prices. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow:- From the outstation, it is clear that the notice U/s 148 has been issued as per law after recording reason to believe and following all the conditions raised by the law as discussed above. There is absolutely no bar that the case has to be taken in scrutiny U/ s 143(2) and not U/s 148/147 as the assessment in both cases is completed U/s 143(3). The issue was judicially analyzed in Chandi Ram Vs. (ITO) (1996)/87 Taxman 418 (Raj)., the Court observed that, ...........so far as the question as to whether the phraseology used in the repealed section and in the amended section is concerned, I am of the view that there was no vested right in an assessee not to pay the correct tax. The provisions of assessments are needed for determination of current liability of the tax in accordance of law which should be on the basis of correct income and if there is any escapement than the ITO has power to re-open the mater The Sec. 147 to 152 as exist today have been discussed at the top of this letter and there is absolutely no contravention with the law in issuing the notice U/s 148. To makes it further clear, the judgment of Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stocks Broker P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and arithmetic error etc. - The issue of export price was never examined. In fact no other issue pertaining to assessment year 2011-12 was examined because the case was not selected through Computer Aided Selection System (CASS) and hence, not subjected to scrutiny assessment. - This is the first time that the case of the assessee for A.Y. 2011-12 is proposed to be examined. - Mere processing of return U/s 143(1) does not mean that the ITR of the assessee has been accepted after examination. - As established by numerous judgments of Hon'ble Supreme Court and various Hon'ble High Courts, the non-examination of case U/s 143(3) does not inhibit, in anyway, the scope of re-opening the case by issuing notice U/s 148. The judgment cited are ACIT Vs. Rajesh Jhewari Stocks Broker Pvt. Ltd., (Supreme Court), Mahanagar Telephone Nigam Ltd. Vs. Chairman CBDT (Del 246 ITR 273). Further, Pradeep Kumar Har Saran Lal Vs. Assessing Officer, 229 ITR 46 (Allahabad), Jorawar Singh Baid Vs. ACIT 198 ITR 47 etc, Punjab Tractors Ltd., Vs. DCIT (P H), 254 ITR 242 Shri. Krishna Mahal Vs. ACIT (MAD) 250 ITR 333, Kailash Auto Finance Ltd., Vs. ACIT (ITAT Lucknow) 32 SOT 80). - The Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signments there are under invoicing of 30% more from that base price. 46% of the total export consignments of fines were observed under invoicing. The list of such consignment is enclosed as annexure VI. (ix) The findings of the Commission has been mentioned at page-238 of the report and are being reproduced below. It is worth mentioning here that the commission has mentioned the FOB rate per WMT (in INR) and has still held the under invoicing to be at 55%- serial number ship ping bill date name, and address of exporter FE content % Quantity exported (WMT) FOB value (rupees) FOB rate per WMT (rupess) Country to which exported % Of under Invoicing as compared to average sale FOB price for same grade and period (Rs) 22 6.4.2010 M/s Mudra 53 Exports, Ghaziabad 53 36854 5821 0893 1579.50 China 55 (x) The Assessee has shown export at the rate of 39 US $ per metric ton however, in 2008 the assessee has himself made export at the rate of 101.40 US $ per metric ton. There is difference of more than 60 US$ per metric ton. If we compare this with the 55% under invoicing, as calculated by the Justice Shah Commission, it gives a figure of around 87 US $ per metric ton which is a conservative f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef . 10. Then, it has been submitted, that the Report is only an opinion as to certain facts. It is not a definite adjudication of any dispute. Even then the report itself does not seek to reach a definite conclusion as to the fact that the petitioner had received any amount over and above the invoice amount, against Iron Ore exported by it. Rather, it assumes existence of such fact. Still, the assessing authority has sucummed to the suspicion raised by the Report and has conjecturally believed that in face of the conclusions recorded in the Report, income has escaped at the hands of the petitioner. 11. Learned counsel for the petitioner further submits that the assessing authority made no efforts to seek any information with respect to the matters reported by the Commission though such power was not only available but may have been necessarily exercised in terms of the Section 133(6) of the Act, before a fishing and roving inquiry may have been undertaken in the garb of the power to re-assess the petitioner. In support of his submissions, he has relied on a decision of the Bombay High Court in Sesa Sterlite Limited Vs. Assistant Commissioner of Income Tax and Others (2019) 417 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Thus, recording of reasons to believe in writing was a sine qua non for valid assumption of jurisdiction to re-assess an assesse. 16. As to what amounts to a reason to believe, the law has remained settled over long decades. In S Ganga Saran and Sons (P) Ltd. Vs. ITO (1981) 3 SCC 143, in the context of the then existing Section 147(a) of the Act, yet, in the context of initiation of reassessment proceedings upon recording of reasons to believe , it was established in law that those words were stronger than is satisfied ; the belief must be based on reasons that are relevant and material . For ready reference, it was held as below:- 6. It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under Section 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74] 97 ITR 239 (SC); CST v. Bhagwan Industries (P.) Ltd.,[1973] 31 STC 293 (SC) and State of Punjab v. Balbir Singh, (1994) 3 SCC 299. 12. The formation of the required opinion and belief by the Assessing Officer is a condition precedent. Without such formation, he will not have jurisdiction to initiate proceedings under section 147. The fulfilment of this condition is not a mere formality but it is mandatory. The failure to fulfil that condition would vitiate the entire proceedings as held by the apex court in the case of Johri Lal (HUF) v. CIT, [1973] 88 ITR 439 (SC) and Sheo Nath Singh v. AAC of IT, [1971] 82 ITR 147 (SC). The reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation of his belief that there has been escapement of income of the assessee from assessment in the particular year. It is not any and every material, howsoever vague and indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to esca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to escapement of the income of the assessee from assessment. The fact that the words definite information which were there in Section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in Section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. 12. The powers of the Income-tax Officer to reopen assessment though wide are not plenary. The words of the statute are reason to believe and not reason to suspect . The reopening of the assessment after the lapse of many years is a serious matter. The Act. no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the norma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a court or the order of a tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in textbooks and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status. Perhaps the only exception is provided by the writings of publicists in international law, for in the law of nations the distinction between formal and material sources is difficult to maintain. 9. In that view, therefore, when Section 147(b) of the Income Tax Act is read as referring to information as to law, what is contempl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the petitioner were below the international price, it could never be alleged that there was any income on accrual basis as the petitioner earned no legal right to receive any higher amount. Therefore, we have to examine if there exists any material indicating receipt of any income on actual/ cash basis, over and above the invoice price. 22. The entire opinion of the Commission and the recital made in the reasons to believe recorded by the petitioner as also reasons recorded by that authority while rejecting the objections raised by the petitioner are directed and confined solely to the observations made by the Commission. The Report is not before us in entirety. To the extent it has been relied by the assessing authority, it only admits of a possibility of higher realizations having been made. Even that possibility exists not on the strength of any material discovered by the commission of higher realizations made by exporters (including the petitioner) but on a presumptuous basis solely by comparing the invoice price with the prevailing international price. Hence, that presumption/ opinion howsoever considered is not based on any hard evidence (either oral or documentary) of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion was expressed thereto. In any case, no material was discovered by the Commission, as may support that belief . 26. That vital fact fell within the domain of the assessing authority. It is that fact alone which may have given rise to a reason to believe that income had escaped assessment at the hands of the petitioner. Since there is no material in that regard, we find that the present re-assessment proceedings have been initiated without any relevant material coming to the hands of the assessing authority to form any reason to believe as to escapement. Once the tangible/ relevant material itself is missing, there arose no occasion with the assessing authority to form any reason . In absence of material and reasons what arose was a simple subjective belief based on no objective/ tangible material or reason. It was inactionable. 27. In exactly similar facts, the Bombay High Court has also quashed re-assessment proceedings, in Sesa Sterlite Limited (supra) and Sociedade de Famento Industrial Pvt. Ltd. (supra). We are in agreement with that view. For the reasons noted above, we find reassessment proceedings initiated against the petitioner for the Assessment Year 2011-12 were wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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